Random Musings

Housing crisis, inflation and Russia

Dec 30,2006

Housing problems

Another ominous warning sign that the housing meltdown has only begun and not ended is the huge drop in the practice of taking home equity loans. This is how most of the masses have been leading their lofty lifestyles and buying stuff with money they don’t have. Now that house prices are falling they are running scared and the worst part is that their bill has increased significantly. To put things into perspective, there was 52% drop in home equity loans in the 3rd quarter; total withdrawals slid from 235.9 billion in the 3rd quarter of 2005 to 113.5 billion in the 3rdquarter of 2006.  Expect this to drop even more by the end of this quarter. Things are not getting better as the press and top economists would have you believe they are getting worse.

Another ominous warning sign that the housing meltdown has only begun and not ended is the huge drop in the practice of taking home equity loans. This is how most of the masses have been leading their lofty lifestyles and buying stuff with money they don’t have. Now that house prices are falling they are running scared and the worst part is that their bill has increased significantly. To put things into perspective, there was 52% drop in home equity loans in the 3rd quarter; total withdrawals slid from 235.9 billion in the 3rd quarter of 2005 to 113.5 billion in the 3rdquarter of 2006.  Expect this to drop even more by the end of this quarter. Things are not getting better as the press and top economists would have you believe they are getting worse.

Late Mortgage Payments

According to the Mortgage Bankers Association (MBA), late payments and foreclosures rose in the 3rd quarter and this trend is expected to continue as a huge number of adjustable mortgages reset in the next couple of months. When these mortgages reset the monthly payments are going to go up significantly; to make matters worse those that have already fallen behind will pay even higher rates because their credit rating has already fallen.  Expect the number of foreclosures to increase substantially next year; foreclosure rates could hit new 3-6 year highs. The biggest increases will be in the formerly red-hot markets of Florida, New York, Arizona, California, etc. Our advice for over two years for those who had more then one home was to sell one or more; risk takers were advised to sell their existing homes and rent. The MBA predicts that a whopping 1.1 to 1.5 trillion worth of loans will reset next year; 700 million of this amount will be refinanced and up to 800 million will adjust at less affordable rates. The fireworks are going to begin sometime next year.

Inflation

The big theme now is to state inflation is under control but that’s one of the biggest lies out there. Note how the so-called soft commodities have exploded in price (grains, sugar, coffee, etc.); these markets are the last to take off but when they do there can be no doubt that inflation is starting to run and all it takes is a small push in the right direction for it to run wild.

Economists had been expecting a rebound in wholesale prices following two months of big declines. However, the 2 percent jump was four times bigger than the 0.5 percent increase they had forecast. Even excluding volatile energy and food prices, core inflation posted a 1.3 percent advance, the biggest jump in 26 years. Full Article

The above story clearly illustrates that inflation is not in check and that the press and the top economists are either consuming large quantities of mind altering drugs or they are completely asleep at the wheel.

The story below provides one clue as to what could be the ultimate trigger for a possible hyperinflationary move in the United States.

President Vladimir Putin said Wednesday that a ruble-denominated oil and natural gas stock exchange should be set up in Russia.  Speaking before both chambers of parliament, cabinet members, and reporters, Putin said: “The ruble must become a more widespread means of international transactions. To this end, we need to open a stock exchange in Russia to trade in oil, gas, and other goods to be paid for with rubles.” “Our goods are traded on global markets. Why are not they traded in Russia?” Putin said. Full Story

We have been stating for some time now that Russia is looking to deliver some sort of massive blow to the United States and thus severely cripple it.  All the natural resources are being brought under State control and they are aggressively buying interests in commodity based companies outside Russia. One of their main strategic moves was to take control of Still water mining (North America’s largest Palladium producer) and thus control over 70% of the world’s Palladium supply. They bought controlling interests right around the time SWC was putting in a long term bottom and thus were able to pay a measly 7.50 per share. They are now trying to do the same thing in Western Europe.  If the above exchange is opened, it will destroy the dollar as Russia will start to sell oil in Rubles and it will bring the Ruble to the forefront of the currency markets. In one move Russia will suddenly move its money from the bottom of the barrel to almost the top of the barrel. Then other nations such as Venezuela and Iran will follow suit and this will add even more pressure to the dollar.

Do not forget that disaster always brings about great opportunities; those positioned in the right sectors will make money regardless of whether they are dollar based or not as oil, gas, coal, and other commodities based stocks will gain 3-15 times as much in value.

One problem with gazing too frequently into the past
is that we may turn around to find the future has run out on us
Michael Cibenko

Other Articles of Interest:

Gold Outlook (Dec 12)

Black Gold (Nov 22)

Uranium  (Nov 22)

Dow 144660 has come and gone (Oct 8)

Dow Jones 11700 (Sept 27)

Dow had corrected and ready to soar again (Sept 17)

Uranium Update  (Sept 12)

RANDOM MUSINGS IVB (Sept 2006)

The Dollar, Gold, Oil and Bonds(Nov 2006)